Rubber glove prices to rise due to higher cost of gas

by **Cals** Fri 18 Apr 2014, 02:23

Business & Markets 2014

Written by Yen Ne Foo of theedgemalaysia.com

Thursday, 17 April 2014 10:01

KUALA LUMPUR: Rubber glove manufacturers have warned that rubber glove prices are set to rise, due to the impending hike in natural gas prices come May 1 which would increase their production costs “significantly”.
The cost of natural gas forms part of the energy costs which currently accounts for 10% of rubber glove makers’ total production costs.
In a statement yesterday, Malaysian Rubber Glove Manufacturers Association (Margma) president Lim Kwee Shyan said depending on the nature of the facilities and the type of gloves produced, direct cost increase is expected to be between US$0.50 (RM1.62) and US$0.80 per 1,000 gloves for examination and surgical gloves.
“There will be other cost increases as well due to the effect on our supply chain which cannot be quantified now. Thus, we expect a domino effect throughout the entire supply chain.
“Glove buyers and manufacturers are advised to compute this [into] their glove price review,” Lim said.
He said while glovemakers understand the need for subsidy rationalisation by the government, they had expected the government to give them more time to adjust to the new cost structure and to liaise accordingly with their customers.
Margma members had received notices from Gas Malaysia Bhd on the natural gas tariff revision by an average of 19% for non-power sectors in Peninsular Malaysia on April 11.
“[The short notice] makes it difficult for manufacturers to manage the sudden increase in production costs as the selling price for orders were already fixed months [ago],” he said.
In a report dated April 14, Kenanga Research said it is not overly concerned since rubber glove players are generally able to pass on the cost increase, judging from past experience in electricity and natural gas tariff hikes.

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“Based on our back-of-envelope calculation, players need to raise the average selling price by 1.3% to cover the higher natural gas cost. From our observation, earnings of rubber glove players were not [affected by] the hike in gas and electricity tariffs in 2011,” the research house added.
It estimates that the natural gas tariff hike to hit rubber glove players’ earnings by between 1% and 3%.

This article first appeared in The Edge Financial Daily, on April 17, 2014.